ANALYST INSIGHT
Exploring Mergers & Acquisitions:
A Strategy for Long-term Success
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By Katherine Burns
Director of Strategic Communications
Growth Team Membership
Frost & Sullivan
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Today’s most prominent business leaders know that the competitive marketplace makes it nearly impossible for an organization to achieve its growth objectives through organic growth alone. Indeed, recent studies suggest companies that don’t complement internal growth with external activity, such as M&A, find it increasingly difficult to provide the top-line and bottom-line results that shareholders expect. Companies looking to expand into new markets, pursue new innovation opportunities and hit aggressive targets must therefore build M&A into their growth strategies.
Although M&A represents a tantalizing shortcut to accelerated growth, most companies that pursue this promise ultimately face losses and complexity rather than gains and simplicity, as outlined in part below. It takes a leader who sets priorities, inspires a sense of purpose and communicates a high level of confidence to engage employees in a focused and productive transition as businesses combine and transform.
These statistics speak to the challenges faced by organizations that merge:
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75 percent of larger mergers destroy, rather than create,
shareholder value
• 50 percent of companies decline in productivity following a
merger announcement
• 47 percent leadership attrition can be expected within the three years
following a merger
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14 percent drop in employee satisfaction can be expected immediately
after a merger
Therefore, while companies pursue M&A as a means to achieving growth targets, the reality is that most M&A activity ultimately fails to deliver shareholder value.
Smart companies follow a rigorous process for researching markets and identifying targets. They understand the very first steps in the process set the tone for everything to follow and plan accordingly. Importantly, they also understand specifically how the target fits into a larger growth strategy, and they know exactly what they can expect to achieve through the acquisition. In the final phase, leadership and corporate culture become extremely important. Executives must develop a successful plan for aligning disparate organizational cultures to keep employees flexible, open and engaged during a transition -- and beyond.
It is important for companies to structure their M&A processes around specific activities that ensure no corners are cut, all pertinent information is surfaced and employees are willing and able to contribute to the success of the newly merged organizations. This discipline forces them to collect the right information, and the tools they use force them to think about this information objectively.
Frost & Sullivan specifically organizes the M&A process into the following phases:
As suggested by the shading above, Frost & Sullivan emphasizes the importance of the first two phases of M&A: Sector and Trend Analysis and Target-Specific Evaluation. Many executives underestimate the importance of these activities and tend to spend less time on upfront research than they should. By drilling down on upfront activities, companies can offset the challenges of post-merger integration to a large degree.
To learn more about how you can build a repeatable and unbiased process for designing an M&A strategy that drives your company’s long-term growth, contact us for a detailed walkthrough of
Frost & Sullivan’s Growth Process Toolkit or Merger & Acquisition and documented best practice approaches to successful implementation.
REFERENCES
1 Laura Pedro, et.al., “Begin With the End in Mind: Tips For a Successful Merger,
Acquisition, or Joint Venture”,
PulvermacherFirth, 2004: 2.
2
See, for instance, Jerry Pfeffer and Robert I. Sutton,
Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting from Evidence-Based Management (Boston: Harvard Business School Press, 2006) 4.
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